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This study examines the effect of Chief Executive Officer (CEO) social influence pressure on the Chief Financial Officer’s (CFO’s) financial reporting decisions. Specifically, we evaluate the impact of inappropriate compliance pressure (a request) or obedience pressure (an order) from the CEO on the CFO’s propensity to make revisions to financial results in order to meet an earnings target. This study extends archival research and survey evidence examining why CFOs appear to participate in accounting manipulations (Dichev et al. 2013; Feng et al. 2011). The results of a between-subjects experiment (CEO pressure manipulated at three levels: no pressure, compliance pressure [request], or obedience pressure [demand]) with 69 public company CFOs indicate that compliance pressure and obedience pressure from the CEO each significantly increase CFOs’ willingness to revise their initial inventory adjustments in the direction preferred by the CEO, with no significant difference between the compliance and obedience pressure groups. Interestingly, although compliance pressure did not create increased levels of perceived pressure in the CFOs relative to the no pressure group, compliance pressure generated an actual response (i.e., revision of the initial adjustment) similar to that under obedience pressure. We also find that CFOs with more accounting experience are less likely to revise their initial adjustment. This study complements archival and survey research on accounting manipulations by directly examining how CEO pressure impacts CFO financial reporting decisions, and it extends the study of social influence pressure effects to the top management team level.
Carol C. Bishop, Columbus State University
Todd DeZoort, University of Alabama-Tuscaloosa
Dana R. Hermanson, Kennesaw State University